NETSTREIT Ticks Many Boxes Which Should Entice Investors

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Written By Jackson Hartwell

NETSTREIT has shown promise despite the challenging market conditions in 2024. As a smaller player in the triple-net lease REIT sector, NETSTREIT competes with larger, well-known entities like Agree Realty (ADC) and Realty Income (O). However, it has carved out a niche for itself with a conservative and well-managed portfolio.

Strong Occupancy and Rent Collection

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One of NETSTREIT’s most significant achievements is maintaining a 100% occupancy rate and rent collection for three consecutive years. This accomplishment speaks to the company’s ability to select high-quality properties and tenants, which is particularly impressive given the disruptions caused by the COVID-19 pandemic.

Portfolio Composition and Tenant Quality:

  • NETSTREIT’s portfolio includes 85 tenants across 26 retail industries.
  • 83% of the tenants are investment-grade or investment-grade profiled.
  • 87% of the tenants are necessity, discount, or service-oriented businesses, which tend to be more resilient during economic downturns.

Financial Performance and Risk Analysis

While the company’s portfolio is strong, certain risks are associated with its reliance on tenants like CVS (CVS) and Walgreens (WBA), particularly given the ongoing changes in the pharmacy sector.

Nevertheless, the overall tenant base remains robust, with minimal exposure to volatile industries.

Portfolio Growth and Financial Health:

  • NETSTREIT continues to grow, with efficient property acquisitions and strong cash yields.
  • The company has a market cap of less than $1.3 billion but boasts over half a billion in pro forma liquidity.
  • Debt maturities are well-managed, with no significant maturities until 2027, ensuring financial stability in the near term.

Valuation and Market Potential

Despite its solid fundamentals, NETSTREIT has faced a challenging year in the stock market, presenting a potential buying opportunity for investors. The company is currently trading at around 14x P/AFFO, compared to its typical P/AFFO of 20x, indicating a significant upside potential.

Valuation Metrics:

  • At a flat 14.5x P/AFFO, NETSTREIT is estimated to generate double-digit returns.
  • Analysts forecast growth rates of 3-5% per year, with a historical accuracy rating of 100% for AFFO estimates.
  • S&P Global analysts have set a price target range of $14 to $22 per share, with an average of $18, suggesting the stock is undervalued.

Strategic Investment Considerations

NETSTREIT is a compelling option for investors who are already maxed out on larger REITs like O and ADC. The company’s consistent performance and conservative portfolio make it an attractive secondary investment within the REIT sector.

Investment Thesis:

  • NETSTREIT offers a 4.7% dividend yield, which is competitive within the REIT sector.
  • The company is well-capitalized and continues to find attractive investment opportunities despite its smaller size.
  • The valuation remains appealing, with a significant upside potential based on both earnings growth and multiple expansion.

Conclusion: A Solid Option for Diversified Portfolios

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NETSTREIT is an attractive investment for those looking to diversify their REIT holdings beyond larger, more established players. Its strong occupancy rates, conservative financial management, and potential for significant upside make it a worthy addition to any income-focused portfolio.

Investment Criteria Fulfillment:

  • Qualitative: High tenant quality and strong portfolio management.
  • Conservative & Well-Run: Excellent financial health and strategic growth.
  • Well-Covered Dividend: Consistent dividend payments with potential for growth.
  • Cheap Valuation: Currently undervalued with room for appreciation.
  • Realistic Upside: High potential based on historical performance and market conditions.

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